Choosing the Best Funding Option for Your Business

Small businesses and start-ups are taking over the business landscape of the United Kingdom. It’s estimated that these types of businesses account for 99.3 per cent of the private sector in the country. It’s definitely attractive to start your own business, as you set your own work hours and deadlines. There’s also the thrill of watching an organisation grow from start to finish.

Whatever the nature of the business is, it requires funding in order to take off. That money will be used to develop a product or service, and pay for employee salaries, utilities, taxes and more.

Some business owners choose to fund their business by borrowing from friends and family, while others use their personal funds. Although these are quick and easy ways to finance a business, they are also risky.

Fortunately, there are several ways to raise funds for your business beyond using your own money or the funds of your loved ones.

Bank loans

The traditional and most popular method of acquiring funds is by requesting a bank loan. You pitch your business to banks, and they offer loans and overdraft facilities if the idea meets their criteria. The process, however, can be lengthy, as it involves the checking of your credit score, conducting due diligence and more.

Be sure to research on various types of loans, and the terms and interest rates that come with each option. Some banks will offer you low-interest rates and won’t have you give up control of the business. Also, ensure that your pitch is solid and that you can prove your business is profitable.

Angel investors

Angel investors are wealthy individuals who bring in funds to a business in exchange for ownership equity or convertible debt. They are usually skilled entrepreneurs who can provide you with guidance in running your business. They also have a network of people who they can bring in as additional investors.

Attracting angel investors requires preparation, so research on potential investors to get a good idea of who you can approach. Certain investors prefer to fund businesses within an industry they’re familiar with. Also, ensure that your business plan and pitch make a strong impression on your chosen financiers.

Qualifying for a venture capital scheme likewise helps pull in investors. To do so, you must apply for advance assurance for plans like enterprise investment scheme (EIS), seed enterprise investment scheme, social investment tax relief and venture capital trust. When you qualify for one of these schemes, your investors will enjoy tax breaks proportional to the cost of shares they purchased, and tax relief if they lose money on the investment.

Business grants

The best part about business grants is that you don’t have to pay back the money. And, acquiring a major grant can be used to show prospective partners, investors and clients that your business has potential. If you consider applying for a grant, be aware that the process and requirements differ from grantor to grantor.

Crowdfunding

Consider making a pitch to raise funds through online crowdfunding platforms. The process is simple: join a crowdfunding site, make a pitch, set a target amount and deadline, and share your link.

Aside from helping you raise funds, crowdfunding allows you to test if there’s demand for your product or service, since the donors are most likely interested in your business. Plus, you keep complete control of your company since you don’t have to give up equity to donors. However, in order for the project to be effective, you must be able to promote your business effectively.

Funding is an essential part of growing a business, as it’s used to develop a product or service, and pay for necessary expenses. There are many forms of funding available that will help launch your idea and turn it into a profitable business.